Democrats, Republicans at odds as bank test vote looms

by Brady Dennis - Apr. 26, 2010 12:00 AMWashington Post

WASHINGTON - Senators will face a crucial test vote today that could clear the way for debate on far-reaching legislation to overhaul the nation's financial regulatory system - or end in a partisan standoff.

Elsewhere on Capitol Hill, lawmakers will be preparing to condemn the alleged sins of Wall Street's past and also will be wrestling over how to prevent such excesses. Top executives from Goldman Sachs, beset by charges that the bank misled clients by selling them mortgage investments secretly designed to fail, will face questions Tuesday about how the firm profited from betting against the U.S. housing market.

Senate Republicans said Sunday they plan to block efforts to move forward with an overhaul bill unless Democrats alter central elements of the legislation. Meanwhile, Democrats and Obama administration officials spent much of the day finalizing strict new rules to rein in the huge derivatives trade, including measures that could threaten profits at some of the nation's biggest banks.

Despite optimism on both sides that a bipartisan compromise will emerge, the lack of a deal has increased the chances of at least a temporary showdown between the two parties.

Democrats need support from at least one Republican to reach the 60 votes required to overcome a filibuster and proceed with formal debate on the bill. Republicans angling for changes do not appear ready to relinquish that bargaining chip.

"It's my expectation that we will not go forward with this partisan bill tomorrow," Senate Minority Leader Mitch McConnell, R-Ky., said on "Fox News Sunday." "It's not ready yet."

The lead GOP negotiator on the bill carried that same message to NBC's "Meet the Press."

"I think that nothing happens between now and tomorrow, that the Democrats will not get cloture," Sen. Richard Shelby, R-Ala., said in an appearance alongside Sen. Chris Dodd, D-Conn., chairman of the banking committee.

Republican and Democratic aides said they expect today's vote to fail unless at least one GOP senator supports the measure. Not that either side would mind terribly: Democrats could say the GOP is standing in the way of reform, and Republicans could say the flaws in Dodd's bill would cause the economy more harm than good.

Still, the measure's long-term prospects seem promising. Aides on both sides said they expect it to remain in limbo until Shelby and Dodd strike a deal or end talks. Senate Majority Leader Harry Reid, D-Nev., could then move to revive the bill, possibly within days, although negotiations could extend longer.

Dodd's 1,400-page bill would, among other things, create a bureau housed within the Federal Reserve to protect consumers against abuses in mortgages and other loans. It would also set up a council of regulators to monitor for risks to the financial system, establish oversight of the vast derivatives market and give the government power to wind down large, troubled financial firms.

Republicans have recently focused most of their criticism on a proposed $50 billion "resolution fund" that would help cover the costs of dealing with a major financial firm's failure. Although the financial industry would pay for the fund, Republicans have argued that it would allow regulators to treat creditors of failing firms unevenly and could leave the door open to bailouts.

The two parties must find common ground over the "Volcker rule," a proposal that would ban Wall Street banks from engaging in certain investment activities, such as owning hedge funds. They also have lingering disagreements about the details of the proposed consumer regulator.